Land Contract: What It Is and How It Works
What a land contract is and how it works: the seller keeps legal title until the buyer pays in full. It is the same instrument as a contract for deed.
A land contract is a form of owner financing in which the seller keeps legal title to the property until the buyer finishes paying, while the buyer takes possession and equitable title in the meantime. It is the same instrument as a contract for deed; the two terms describe one structure, an executory contract, in which the seller carries the financing and the buyer pays directly over a set term. Legal title transfers only when the contract is satisfied. The arrangement is used nationwide, and in Texas it is regulated as an executory contract under Tex. Property Code §5.061.
A land contract and a contract for deed are the same instrument. The seller holds the deed until the buyer pays in full.
The short version
- A land contract is owner financing where the seller keeps legal title until the buyer pays in full; the buyer takes possession and equitable title now.
- It is the same instrument as a contract for deed or executory contract; only the name changes by region.
- Default mechanics differ from a deed of trust, and legal title stays with the seller until the contract is satisfied.
- In Texas it is regulated as an executory contract under Tex. Property Code §5.061.
This is educational information, not legal, financial, or tax advice. Consult a licensed professional about your specific situation.
What is a land contract?
A land contract is a written agreement to buy real property in installments paid directly to the seller, with the seller retaining legal title as security until the buyer pays in full. The buyer takes possession and equitable title at signing and uses the property as an owner would, but the deed does not transfer until the contract is satisfied. The contract sets the purchase price, the down payment, the interest rate, the term, and the payment schedule. Because the seller finances the purchase rather than a bank, the structure is a form of owner financing. The name varies by region: land contract, contract for deed, installment land contract, or executory contract.
How does a land contract work?
Under a land contract, the seller and buyer sign one written contract that fixes the financial terms and the obligations of each party. The buyer takes possession and pays the seller directly over the term, typically in monthly installments of principal and interest. The seller holds legal title the entire time as security. When the buyer pays the contract in full, or reaches the milestone the contract specifies, the seller delivers the deed and legal title transfers to the buyer.
Because the seller carries the financing, the seller becomes the lender of record and takes on the duties that come with that role:
- Posting each payment and keeping accurate records.
- Reporting interest to the buyer on IRS Form 1098 each year.
- Administering property taxes and insurance if the contract escrows.
Is a land contract the same as a contract for deed?
Yes. A land contract and a contract for deed are two names for the same instrument. Both describe an executory contract in which the seller carries the financing and keeps legal title until the buyer pays in full, while the buyer holds equitable title and possession. The terminology is regional: land contract is the more common phrase in parts of the Midwest, while contract for deed is the term used in Texas. Installment land contract and executory contract refer to the same arrangement.
The defining feature is consistent across the names: title stays with the seller until satisfaction. That distinguishes the instrument from a deed of trust, where the buyer takes legal title at closing and the seller records a lien. For the Texas-specific treatment, see the contract for deed guide.
How does Texas regulate land contracts?
Texas regulates the land contract as an executory contract under Tex. Property Code §5.061 and the sections that follow. An executory contract is one in which the seller's obligation to deliver the deed is deferred until the buyer performs, which is exactly how a land contract works. The Texas framework sets disclosure, recording, and notice requirements that govern these contracts, and default does not run through the §51.002 non-judicial foreclosure process used for a deed of trust. Which rules apply to a given contract depends on the property and the parties. For the full framework, see the Texas seller-finance regulations guide.
What are land contract homes?
Land contract homes are residential properties sold on a land contract, where the buyer purchases the home directly from the seller and pays over time instead of borrowing from a bank. The buyer moves in and uses the home as an owner, but legal title stays with the seller until the contract is paid in full. The home is the security for the contract, the same way a property secures a mortgage.
Buyers who cannot qualify for a conventional mortgage use the structure, and so do sellers who want to carry the financing and collect interest over the term. Whether buying or selling a home on a land contract fits a given situation depends on the property, the parties, and the law of the state where the property sits.
How common is seller financing in Texas?
Texas accounts for 24.7% of all U.S. seller-financed notes, the #1 state, roughly three times Florida (NoteInvestor / Advanced Seller Data Services, 2025). Land contracts and contracts for deed are part of that activity alongside deed-of-trust notes. The rules that govern these contracts differ from state to state, so the terms of any specific contract should be reviewed against the law where the property sits.
What happens if the buyer stops paying on a land contract?
Default on a land contract does not run through the non-judicial foreclosure process used for a deed of trust; the executory-contract rules govern instead. In Texas, the seller has to give the required notices before the contract can be terminated, and the notice work has to be exact. A defective notice can reset the process.
Moat boards performing notes only and keeps servicing a note if it later goes into default. The seller decides how to pursue a default: termination and notice work runs through the seller's attorney, and any foreclosure-track service is a separate election by the seller. If a serviced note reaches roughly 120 days delinquent with no resolution and no instruction on how to proceed, Moat offboards the note and transfers it back, because it does not carry non-performing paper.
Can a land contract be serviced?
Yes. A servicer can perform the lender-of-record work on a land contract on the seller's behalf: posting payments, keeping records, sending the buyer IRS Form 1098 each year, and administering property taxes and insurance if the contract escrows.
Moat is a licensed Texas mortgage servicer, bonded, NMLS 1419346, and services land contracts and contracts for deed secured by Texas property only. It is a servicer, not an originator; drafting the contract is regulated origination work that runs through a Texas-licensed RMLO. If your property is in another state, request your state and we will point you in the right direction.
What does it cost to service a land contract in Texas?
Servicing runs $35/month for a non-escrowed note and $40/month for an escrowed note, with a one-time $150 setup. Every fee is published up front and there is no contract; you give 30-day notice to terminate. See the full Texas note servicing fee schedule for payoff, NSF, and other line items.
Land contract, answered
What is a land contract?
A land contract is a form of owner financing in which the seller keeps legal title until the buyer finishes paying, while the buyer takes possession and equitable title in the meantime. It is also called a contract for deed or an executory contract. The buyer pays the seller directly over a set term under a written contract, and legal title transfers only when the contract is satisfied. In Texas, the structure is regulated as an executory contract under Tex. Property Code §5.061.
How does a land contract work?
Under a land contract, the seller and buyer sign a written contract setting the price, down payment, interest rate, term, and payment schedule. The buyer takes possession and pays the seller directly over the term, while the seller holds legal title as security until the buyer pays in full. At satisfaction, the seller delivers the deed and legal title transfers. Because the seller carries the financing, the seller takes on lender-of-record duties: posting payments, keeping records, and reporting interest on IRS Form 1098.
Is a land contract the same as a contract for deed?
Yes. A land contract and a contract for deed are two names for the same instrument: an executory contract in which the seller carries the financing and keeps legal title until the buyer pays in full, while the buyer holds equitable title and possession. The term land contract is more common in some states; contract for deed is the common term in Texas. Texas regulates the instrument under Tex. Property Code §5.061.
Are land contract homes a good way to buy property?
A land contract lets a buyer purchase a home without a bank mortgage by paying the seller directly over time, which can suit buyers who cannot qualify for conventional financing. The structure carries different default mechanics than a deed of trust, and legal title stays with the seller until the contract is satisfied. Whether it fits a given purchase depends on the property, the parties, and state law, so the terms should be reviewed by a licensed professional before signing.
Have a Texas land contract or contract for deed to service? Schedule a consultation and we'll review your loan documents and quote the boarding. Moat services Texas notes only; if your property is in another state, request your state.
About Moat Note Servicing
Moat Note Servicing is a Texas-licensed mortgage servicer (NMLS 1419346) based in San Antonio. We service residential, commercial, land, and contract-for-deed notes secured by Texas real estate. This guide is general information about Texas mortgage law and servicing practice; it is not legal advice. For your specific situation, talk to a Texas attorney.